Electrosteel Steels goes to Vedanta, first of 12 IBC cases resolved

The value of the bid is Rs 53.20 bn, against admitted claims worth Rs 133 bn

The Kolkata Bench of the National Company Law Tribunal (NCLT) has approved Vedanta's resolution plan for Electrosteel Steels, paving the way for the debt resolution of the first of 12 cases mandated by the Reserve Bank of India (RBI) under the Insolvency and Bankruptcy Code (IBC).

The resolution plan, which was approved by a 100 per cent vote by the committee of creditors (CoC), will come into force with immediate effect, according to the NCLT order. The stipulated 270-day period, by when debt resolution for Electrosteel Steels was to be approved, ended on Tuesday.

Vedanta Resources Chairman Anil Agarwal told Business Standard, “We look forward to working with the existing workforce at Electrosteel Steels. Though the business is not doing well, the team is good. We don’t plan any job cuts.” Agarwal added though it was a new business for Vedanta, the existing management committee had the expertise to take care of it. He, however, said Electrosteel might require a lot of initial funding since it was not in good shape.

Vedanta informed the stock exchanges a wholly-owned subsidiary of the firm would subscribe to the share capital of Electrosteel for an aggregate amount of Rs 18.05 billion and provide additional funds of Rs 35.15 billion. The value of the bid is Rs 53.20 billion, against admitted claims worth Rs 133 billion.

Upon the execution of the resolution plan, Vedanta will hold approximately 90 per cent of the paid-up share capital of Electrosteel, and the remaining 10 per cent will be held by Electrosteel's existing shareholders and the financial creditors, who receive shares in exchange for the debt owed to them.

VEDANTA'S FORAY INTO STEELMAKING

Vedanta's offer was Rs 53.20 bn

Total admitted financial claims are Rs 133 bn

• The resolution plan will come into force with immediate effect
• Electrosteel acquisition will mark Vedanta's foray into steelmaking
• Vedanta will hold 90 per cent equity of Electrosteel
• Balance 10 per cent to be held by existing Electrosteel shareholders and financial creditors

Tata Steel's offer, which was the second highest, was around Rs 20 billion less than Vedanta's. 

Abhishek Dalmia, chairman of the Renaissance group, which had bid for Electrosteel, said he would move the Supreme Court to challenge Vedanta’s qualification.

Renaissance Steel India had challenged the Vedanta’s resolution plan on grounds of eligibility under Section 29A of the IBC. 

Renaissance had challenged the eligibility of both Vedanta and Tata Steel. “Tomorrow (On Wednesday), there is a hearing in the National Company Law Appellate Tribunal (NCLAT) on the eligibility of Tata Steel and Vedanta,” said Dalmia.

The acquisition of Electrosteel will mark Vedanta’s foray into steelmaking. Electrosteel has a commissioned capacity of 1.5 million tonnes and planned capacity of 2.51 million tonnes.

The transaction would complement the group's existing iron ore business as the vertical integration of steel manufacturing capabilities had the potential to generate significant efficiencies, Vedanta's stock exchange notice said. Vedanta has an iron ore block in Jharkhand and Electrosteel’s plant is also located in the state. 

Vedanta's iron ore business is spread over Goa and Karnataka and the company has lined up major plans for the steel vertical. Electrosteel is just a small element in Vedanta’s plan. 

Vedanta has bid for Essar Steel, one of the largest big-ticket stressed steel assets, with a nameplate capacity of 9.7 million tonnes. After staying away from the first round of bidding for Essar Steel, Vedanta made a surprise entry in the second round. Any order against Vedanta in the Electrosteel case would have put its bid for Essar Steel under a cloud.

The NCLT order relied on the “object” behind the introduction of the amended Section 29A to the Code.

Renaissance had challenged the eligibility of Vedanta on the grounds that Konkola Copper Mines (KCM), a subsidiary of Vedanta Resources and a connected party of Vedanta Limited, was convicted under various provisions of the environmental protection and pollution control law in Zambia.  Renaissance's main argument was if KCM was found guilty of any offence punishable with imprisonment for two years or more as provided under Section 29A (d), then Vedanta Limited, is ineligible. 

The NCLT Bench noted KCM was a “connected person” of Vedanta but not a habitual offender. 

“The magistrate could have sentenced KCM for a period of three years, as provided under the law but he did not. In short, the connected person of the resolution applicant was not convicted for imprisonment of a period of two years or more,” the order said.